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Richard Liu, CEO and founder of China's e-commerce company JD.com, speaks before ringing the opening bell at the NASDAQ Market Site building at Times Square in New York, May 22, 2014.

Shannon Stapleton/Reuters

Chinese retailer JD.com Inc’s stock fell as much as 7 per cent on Tuesday, hitting an 18-month low after the company’s chief executive officer was arrested in the United States on suspicion of criminal sexual conduct and later released.

Richard Liu, who founded the firm in 1998, was arrested by police in the U.S. city of Minneapolis on Friday and released the next day before returning to China.

Minneapolis police said on Sunday that “an active investigation” was under way. A Minnesota-based lawyer for Liu said on Monday the Chinese magnate has denied any wrongdoing and that he did not expect his client to be charged.

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The stock’s decline underscores the uncertainty hanging over the fate of Liu, who holds a tight grip over decision making at China’s second largest e-commerce firm.

JD.com’s rules require Liu, who holds nearly 80 percent of the company’s voting rights, to be present at board meetings for the board to make decisions, although it was not immediately clear if he has to be physically present or could participate by teleconference.

The founder and chief executive of Chinese retailer JD.com Inc, Richard Liu, was arrested in Minneapolis last week following an allegation of rape, according to a public information report released by police. Reuters

The company, backed by Walmart Inc, Alphabet Inc’s Google and China’s Tencent Holdings, is looking to bolster its international reach even as it faces stiff competition from rival Alibaba Group Holding Ltd at home.

“The incident looks awful of course,” analyst Rob Sanderson of MKM Partners said.

“If this spirals as a media focus, negative attention could offset some of the positives associated with endorsement by Walmart and Google,” Sanderson said.

“Negative publicity could also compromise JD.com’s ability to attract international brands to its marketplace, which has been a top focus of the CEO over the past two years or so,” Sanderson noted.

However, Sanderson said the risk of any disruption to the business on an incarceration seemed quite low, noting that authorities released Liu without bail and allowed him to return to China.

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“This does, however, cast another shadow on credibility and ethics, especially after the 2015 incident in Australia,” Sanderson said.

In July, Liu lost a court battle in Australia to keep his name out of a sexual assault trial in which a guest at a party Liu had hosted at his luxury Sydney home in late 2015 accused another guest of sexually assaulting her at a hotel.

Liu was not accused of wrongdoing, according to a court document. The defendant was found guilty of seven offenses.

JD.com’s shares were currently trading down 5.5 per cent at $29.58.

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